Home prices continue to rise across the U.S., but the year-over-year gains are somewhat declining after the big gains seen in 2013. Corelogic reported that home prices, including distressed sales, rose by 11.13% year-over-year in March after a 11.81% increase in February. That is the 25th straight year-on-year gain. From February to March, prices rose by 1.4%. However, affordability, tight credit and supply concerns are becoming an increasing drag on purchase market activity, said CoreLogic.
Legendary fund manager Jeffery Gundlach, whose $32B Total Return Fund (DBLTX), which specializes in mortgage bonds and has beaten 97% of similarly managed funds, has recommended to bet against exchange traded funds that tracks homebuilders because declining affordability will reduce housing demand. Homeownership has been declining; the share of Americans who own their homes fell to 64.8% in the first quarter of 2014, an almost 19-year low.
In a recent survey, nearly half of lenders say mortgage demand is weak as credit standards tighten. The April Federal Reserve senior loan officer survey said that credit standards on mortgage loans that banks categorize as nontraditional residential mortgages and subprime residential mortgage tightened. The decline in demand has also been seen in lender earnings as more banks reporting that things are tougher currently in mortgage finance compared to a year ago.